Mercury General Corporation Announces Second Quarter Results and Declares Quarterly Dividend

Consolidated Highlights

Three Months Ended June 30,

Change

Six Months Ended June 30,

Change

2023

2022

$

%

2023

2022

$

%

(000's except per-share amounts and ratios)

Net premiums earned 

$  1,034,469

$     987,512

$   46,957

4.8

$ 2,039,173

$  1,950,062

$   89,111

4.6

Net premiums written ⁽¹⁾ 

$  1,115,345

$  1,016,994

$   98,351

9.7

$ 2,125,546

$  2,027,791

$   97,755

4.8

Net realized investment (losses) gains, net of tax ⁽²⁾

$     (15,625)

$   (191,131)

$ 175,506

NM

$     23,091

$                (345,249)

$ 368,340

NM

Net loss

$     (41,543)

$   (210,681)

$ 169,138

NM

$   (86,831)

$                (407,599)

$ 320,768

NM

Net loss per diluted share ⁽³⁾

$        (0.75)

$        (3.80)

$      3.05

NM

$      (1.57)

$     (7.36)

$      5.79

NM

Operating loss ⁽¹⁾

$     (25,918)

$     (19,550)

$   (6,368)

NM

$ (109,922)

$  (62,350)

$ (47,572)

NM

Operating loss per diluted share ⁽¹⁾

$        (0.47)

$        (0.35)

$     (0.12)

NM

$      (1.99)

$     (1.13)

$     (0.86)

NM

Catastrophe losses net of reinsurance ⁽⁴⁾

$      92,000

$      21,000

$   71,000

338.1

$   190,000

$   43,000

$ 147,000

341.9

Combined ratio ⁽⁵⁾

110.1 %

106.6 %

—

     3.5      pts

112.9 %

108.1 %

—

     4.8      pts

NM = Not Meaningful

(1)

These measures are not based on U.S. generally accepted accounting principles ("GAAP"), are defined in "Information Regarding GAAP and Non-GAAP Measures" and are reconciled to the most directly comparable GAAP measures in "Supplemental Schedules."

(2)

Net realized investment (losses) gains before tax were $(20) million and $(242) million for the three months ended June 30, 2023 and 2022, respectively, and $29 million and $(437) million for the six months ended June 30, 2023 and 2022, respectively. The changes in fair value of the Company's investments are recorded as part of net realized investment gains or losses in its consolidated statements of operations due to the adoption of the fair value option for its investments as permitted under GAAP.

(3)

Any incremental shares are excluded from the net loss per diluted share calculation as their effect would be anti-dilutive, in accordance with GAAP.

(4)

No reinsurance benefits were available for the catastrophe losses incurred during the six months ended June 30, 2023 and 2022, as none of the catastrophe events during these periods individually resulted in losses in excess of the Company's retention limit. Catastrophe losses incurred during the six months ended June 30, 2023 resulted primarily from winter storms and rainstorms in California, Texas and Oklahoma. Catastrophe losses incurred during the six months ended June 30, 2022 resulted primarily from winter storms, rainstorms and hail in Texas and winter storms in California. The Company experienced favorable development of approximately $1 million and unfavorable development of approximately $3 million on prior years' catastrophe losses for the six months ended June 30, 2023 and 2022, respectively.   

(5)

The Company experienced favorable development of approximately $4 million and approximately $2 million on prior accident years' loss and loss adjustment expense reserves for the three months ended June 30, 2023 and 2022, respectively, and favorable development of approximately $20 million and unfavorable development of approximately $51 million on prior accident years' loss and loss adjustment expense reserves for the six months ended June 30, 2023 and 2022, respectively. The year-to-date favorable development in 2023 was primarily attributable to lower than estimated losses and loss adjustment expenses in the private passenger automobile and homeowners lines of insurance business, partially offset by unfavorable development in the commercial property line of insurance business. The year-to-date unfavorable development in 2022 was primarily attributable to higher than estimated losses and loss adjustment expenses in the private passenger automobile and commercial property lines of insurance business, partially offset by favorable development in the commercial automobile and homeowners lines of insurance business. Extreme rates of inflation in 2022 have begun to moderate in 2023, but remain elevated and continue to negatively impact loss severity. The Company has increased rates and filed for additional rate increases in many states and is taking various non-rate actions to improve profitability.

Investment Results

Three Months Ended June 30,

Six Months Ended June 30,

2023

2022

2023

2022

(000's except average annual yield)

Average invested assets at cost ⁽¹⁾

$   5,045,828

$   4,900,223

$   5,033,723

$   4,879,634

Net investment income ⁽²⁾

     Before income taxes

$        58,350

$        38,555

$      110,323

$        73,906

     After income taxes

$        49,819

$        33,517

$        94,613

$        64,438

Average annual yield on investments - after income taxes ⁽²⁾

4.0 %

2.7 %

3.8 %

2.6 %

(1)

Fixed maturities and short-term bonds at amortized cost; equities and other short-term investments at cost. Average invested assets at cost are based on the monthly amortized cost of the invested assets for each period.

(2)

Higher net investment income before and after income taxes for the three and six months ended June 30, 2023 compared to the corresponding periods in 2022 resulted largely from higher average yield combined with higher average invested assets. Average annual yield on investments after income taxes for the three and six months ended June 30, 2023 increased compared to the corresponding periods in 2022, primarily due to the maturity and replacement of lower yielding investments purchased when market interest rates were lower with higher yielding investments, as a result of increasing overall market interest rates, as well as higher yields on investments based on floating interest rates.

Rate Increases

Implemented in 2022

Rate Increases

Implemented in 2023

Rate Increases Pending

Regulatory Approval Or

Expected To Be

Implemented in the Third

Quarter of 2023

California Personal Auto

None

14.4% ^(b)

20.8% ^(c)

California Homeowners

None

12.6 %

7.0% ^(d)

California Commercial Auto

None

13.0 %

14.9% ^(e)

Personal Auto Outside of California ^(a)

20.3 %

7.6 %

5.2% ^(f)

Homeowners Outside of California ^(a)

17.1 %

9.7 %

11.6% ^(f)

(a) Rate increase is a weighted average of increases in states outside of California based on earned premiums in 2022.

(b) Represents the cumulative effect of two rate increases: 6.9% in March 2023 and 6.99% in July 2023.

(c) Rate was filed in July 2023. Awaiting approval by the California Department of Insurance ("DOI") before it can be implemented.

(d) Rate was filed in May 2023. Awaiting approval by the California DOI before it can be implemented.

(e) Rate was filed in January 2023. Awaiting approval by the California DOI before it can be implemented.

(f) Includes rates already approved but not implemented or rates that will be filed under "use and file" or "file and use."

MERCURY GENERAL CORPORATION AND SUBSIDIARIES

SUMMARY OF OPERATING RESULTS

(000's except per-share amounts and ratios)

(unaudited)

Three Months Ended June 30,

Six Months Ended June 30,

2023

2022

2023

2022

Revenues:

     Net premiums earned

$      1,034,469

$         987,512

$      2,039,173

$      1,950,062

     Net investment income

58,350

38,555

110,323

73,906

     Net realized investment (losses) gains

(19,778)

(241,938)

29,229

(437,024)

     Other

10,186

1,496

11,081

4,142

          Total revenues

1,083,227

785,625

2,189,806

1,591,086

Expenses:

     Losses and loss adjustment expenses

897,810

826,779

1,827,339

1,648,713

     Policy acquisition costs

172,737

156,482

337,245

318,574

     Other operating expenses

68,341

69,430

138,031

139,720

     Interest

5,549

4,274

10,479

8,548

          Total expenses

1,144,437

1,056,965

2,313,094

2,115,555

Loss before income taxes

(61,210)

(271,340)

(123,288)

(524,469)

     Income tax benefit

(19,667)

(60,659)

(36,457)

(116,870)

                    Net loss

$         (41,543)

$       (210,681)

$         (86,831)

$       (407,599)

Basic average shares outstanding

55,371

55,371

55,371

55,371

Diluted average shares outstanding

55,371

55,371

55,371

55,371

Basic Per Share Data

Net loss

$             (0.75)

$             (3.80)

$             (1.57)

$             (7.36)

Net realized investment (losses) gains, net of tax

$             (0.28)

$             (3.45)

$               0.42

$             (6.24)

Diluted Per Share Data

Net loss

$             (0.75)

$             (3.80)

$             (1.57)

$             (7.36)

Net realized investment (losses) gains, net of tax

$             (0.28)

$             (3.45)

$               0.42

$             (6.24)

Operating Ratios-GAAP Basis

Loss ratio

86.8 %

83.7 %

89.6 %

84.6 %

Expense ratio

23.3 %

22.9 %

23.3 %

23.5 %

Combined ratio

110.1 %

106.6 %

112.9 %

108.1 %

MERCURY GENERAL CORPORATION AND SUBSIDIARIES

CONDENSED BALANCE SHEETS AND OTHER INFORMATION

(000's except per-share amounts and ratios)

June 30, 2023

December 31, 2022

(unaudited)

ASSETS

Investments, at fair value:

     Fixed maturity securities (amortized cost $4,216,242; $4,226,790)

$             4,094,703

$             4,088,311

     Equity securities (cost $649,151; $668,843)

670,491

699,552

     Short-term investments (cost $190,991; $123,928)

189,991

122,937

          Total investments

4,955,185

4,910,800

Cash

357,723

289,776

Receivables:

     Premiums

590,617

571,910

          Allowance for credit losses on premiums receivable

(5,400)

(5,800)

                  Premiums receivable, net of allowance for credit losses

585,217

566,110

     Accrued investment income

55,597

52,474

     Other

15,092

11,358

          Total receivables

655,906

629,942

Reinsurance recoverables

27,538

25,895

Deferred policy acquisition costs

278,261

266,475

Fixed assets, net

160,067

171,442

Operating lease right-of-use assets

18,775

20,183

Current income taxes

90,126

55,136

Deferred income taxes

44,660

42,903

Goodwill

42,796

42,796

Other intangible assets, net

8,772

9,212

Other assets

50,831

49,628

          Total assets

$             6,690,640

$             6,514,188

LIABILITIES AND SHAREHOLDERS' EQUITY

Loss and loss adjustment expense reserves

$             2,720,007

$             2,584,910

Unearned premiums

1,632,390

1,545,639

Notes payable

448,529

398,330

Accounts payable and accrued expenses

165,331

151,686

Operating lease liabilities

20,114

21,924

Other liabilities

304,129

289,568

Shareholders' equity

1,400,140

1,522,131

          Total liabilities and shareholders' equity

$             6,690,640

$             6,514,188

OTHER INFORMATION

Common stock shares outstanding

55,371

55,371

Book value per share

$                    25.29

$                    27.49

Statutory surplus ^(a)

$1.44 billion

$1.50 billion

Net premiums written to surplus ratio ^(a)

2.83

2.65

Debt to total capital ratio ^(b)

24.3 %

20.8 %

Portfolio duration (including all short-term instruments) ^{(a) (c)}

3.1 years

3.5 years

Policies-in-force (company-wide "PIF") ^(a)

     Personal Auto PIF

1,055

1,101

     Homeowners PIF

744

736

     Commercial Auto PIF

40

39

(a)

Unaudited.

(b)

Debt to Debt plus Shareholders' Equity (Debt at face value).

(c)

Modified duration reflecting anticipated early calls.

SUPPLEMENTAL SCHEDULES

(000's except per-share amounts and ratios)

(unaudited)

Three Months Ended June 30,

Six Months Ended June 30,

2023

2022

2023

2022

Reconciliations of Comparable GAAP Measures to Operating Measures ^(a)

Net premiums earned

$      1,034,469

$         987,512

$   2,039,173

$   1,950,062

Change in net unearned premiums

80,876

29,482

86,373

77,729

Net premiums written

$      1,115,345

$      1,016,994

$   2,125,546

$   2,027,791

Incurred losses and loss adjustment expenses

$         897,810

$         826,779

$   1,827,339

$   1,648,713

Change in net loss and loss adjustment expense reserves

(45,081)

(85,622)

(132,753)

(175,183)

Paid losses and loss adjustment expenses

$         852,729

$         741,157

$   1,694,586

$   1,473,530

Net loss

$         (41,543)

$       (210,681)

$      (86,831)

$    (407,599)

Less: Net realized investment (losses) gains

(19,778)

(241,938)

29,229

(437,024)

         Tax on net realized investment (losses) gains ^(b)

(4,153)

(50,807)

6,138

(91,775)

             Net realized investment (losses) gains, net of tax

(15,625)

(191,131)

23,091

(345,249)

Operating loss

$         (25,918)

$         (19,550)

$    (109,922)

$      (62,350)

Per diluted share:

Net loss

$             (0.75)

$             (3.80)

$          (1.57)

$          (7.36)

Less: Net realized investment (losses) gains, net of tax

(0.28)

(3.45)

0.42

(6.24)

Operating loss ^(c)

$             (0.47)

$             (0.35)

$          (1.99)

$          (1.13)

Combined ratio

112.9 %

108.1 %

Effect of estimated prior periods' loss development

1.0 %

(2.6) %

Combined ratio-accident period basis

113.9 %

105.5 %

(a)

See "Information Regarding GAAP and Non-GAAP Measures" on page 8. 

(b)

Based on federal statutory rate of 21%.

(c)

Operating loss per diluted share for the six months ended June 30, 2022 does not sum due to rounding.